Cyprus and Poland sign Protocol for the avoidance of Double Taxation

Cyprus and Poland signed on 22 March 2012 a protocol amending the Double Taxation Agreement between the two countries.

The agreement was signed between Cypriot Minister of Finance, Kikis Kazamias and the Ambassador of the Republic of Poland in Nicosia, Pawel Dobrowolski.

The agreement maintains the existing regime for Polish workers on Cypriot ships, approximately 9000 people, who are not taxed and reduces the withholding tax rates in respect of dividends from 10% to 5% or 0% and in respect of interest, from 10% to 5%.

The Agreement has also been extended to encompass a tax information exchange clause based on the provisions of article 26 of the OECD Model Tax Convention.

Cyprus - Increase in the Standard VAT rate from 15% to 17%

Still the second lowest rate in the EU

The standard VAT rate has increased from 15% to 17% for supply of goods and services, as from 1 March 2012. Therefore, all the supplies of goods and services that were taxable with the standard VAT rate of 15%, from 1 March 2012 are to be taxable with 17%.

The supplies of goods and services that fall under the zero VAT rate or are exempt from VAT continue to have the same treatment for VAT purposes even after 1 March 2012. In addition, please note that the change in the standard VAT rate will not affect the reduced rates of 5% and 8%.

The transitional provisions of Article 55 of the VAT Law apply, based on which a taxable person selling goods or providing services has the choice of applying the old VAT rate (15%) or the new VAT rate (17%), but only for certain cases. For instance, when the goods/services were delivered or respectively performed before 1 March 2012 and the payment was made and/or the invoice was issued after 1 March 2012, then the taxable person may apply the VAT rate of 15%.

Despite the above increase of the VAT rate by 2%, Cyprus still enjoys one of the lowest rates in the EU, and combined with its very low indeed corporate tax rate (10%), Cyprus will still be a favorable jurisdiction for establishment of trading and other types of companies.